I wrote last year about the Ontario Superior Court of Justice’s decision in the case of Keenan v. Canac Kitchens (a link to same can be found here: http://www.employmentandlabour.com/?s=Canac). Last week the Ontario Court of Appeal upheld the Superior Court’s decision in Canac, and added some additional guidance with respect to the law surrounding dependent contractor relationships.

First, a quick reminder as to the facts of this particular case. Lawrence and Marilyn Keenan were employed by Canac Kitchens beginning in 1976 and 1983 respectively. In 1987, both were advised that their employment was coming to an end but that they could carry on as independent contractors. An independent contractor agreement was signed by Marilyn and the Keenans carried on as before. They continued working for Canac until the company closed its operations in 2009. No notice of termination or pay in lieu of notice was provided.

While there were some factors in this case which suggested an independent contractor agreement, the lower court was particularly fixated on the fact that the Keenans worked exclusively for Canac until 2007. Although they did some small amount of work for a competitor named Cartier between 2007 and 2009 due to a shortage of work at Canac, the judge accepted that Canac turned a blind eye to same. In other words, for all intents and purposes the Keenans provided services only to Canac for almost the entire duration of the relationship. Moreover, Canac had almost complete control of the work performed by the Keenans.

As a result, the Superior Court found that although the Keenans were contractors, they were in a dependent relationship to Canac and therefore entitled to notice of termination. Due to the 32 and 25 years of service provided by Lawrence and Marilyn respectively (which resulted in an average length of service of 28.5 years between the two of them), the court found that a whopping 26 month notice period was reasonable.

Canac contended that the trial judge erred: (i) in finding that the Keenans were in an exclusive relationship with Canac; and (ii) in awarding 26 months of notice. The Ontario Court of Appeal determined that while the Keenans performed some work for Cartier, the substantial majority of their work was for Canac. More specifically, of the approximately 32 and 25 years of service which Lawrence and Marilyn gave to Canac, all but two were exclusively in the service of Canac. The court further stated that the full history of the working relationship between the parties must be examined, and not just a snapshot at the time of termination.

In addition, the Court found that because of the age and length of service of the Keenans, the fact that for over a generation they were Canac’s public face to the outside world, and the fact that their income had come from Canac during the entirety of their working lives, an award in excess of 24 months was justified and the trial judge’s finding for a 26 month notice period was reasonable.

In the Ontario Divisional Court decision of Simpson v Global Warranty[1], the issue was the application of a specific termination clause in an employment contract where the employer violated the contract in the course of the termination.

The employer had laid the employee off, and had only paid out his termination entitlements several months later, when the layoff became permanent. When the employee sued for additional amounts, the employer alleged just cause.

At trial, the Ontario Superior Court of Justice had determined that the employee had been constructively dismissed when he was laid off, and that the employee had not been terminated for just cause. On appeal, neither of these conclusions was in dispute. The only issue on appeal was the quantum of severance, and in particular whether the employer could rely on the termination provision in light of its alleged breaches of the contract, such that the employee was entitled to a longer common law reasonable notice period.

The employee argued that a termination provision in an employment agreement should not apply where (1) the employee had been constructively dismissed; or (2) the employer had unsuccessfully alleged just cause for dismissal. The employee argued that in both cases, the employer had breached the contract, and therefore could not claim the benefit of the termination clause.

The relevant clause of the employee’s contract stated:

[U]nless an employee is terminated for cause, an employee’s employment may be terminated at the sole discretion of the Employer and for any reason whatsoever upon providing the employee with one (1) weeks [sic] notice or pay in lieu thereof, subject to any additional notice, pay in lieu thereof or severance that may be required to meet the minimum requirements of the Employment Standards Act…

As the employer had refused to accept that the employee’s employment had been terminated when he had been laid off and consequently delayed payment, the employee was delayed in (a) receiving severance; and (b) his efforts to secure future employment (because he believed he might be recalled).

The Divisional Court found that the fact that the employer was in breach of the contract by not immediately paying the amount owed was not a breach “of an order of magnitude…as to disentitle the [employer] from the benefit of the termination provision”.[2]

The employee also argued that because the employer labelled the termination as a “lay off”, the employer could not rely on the clause, which only referenced “termination”. This argument was rejected because the clause addressed the events that transpired: termination without cause, which included constructive dismissal.

In dealing with the argument that the allegation of cause rendered the employer unable to rely on the termination provision, the Divisional Court distinguished the facts before it from those cases where an employer knowingly wrongfully terminates a contract for cause, which would repudiate the contract. In Simpson the Divisional Court acknowledged that the termination was initially effected not for cause and the termination amounts were paid out; consequently there was no repudiation. As such, the failed defence simply resulted in a finding that the employee was terminated without cause, the situation directly addressed in the termination clause.

This case identifies several potential pitfalls when it comes to the application of employment contracts, and in particular highlights the need for employers to carefully and correctly apply termination provisions at the time of termination. While the employer here was ultimately successful, the case is a useful reminder of just how important it is to cross the “t’s” and dot the “i’s” when proceeding with a termination, to avoid disputes that could lead to costly litigation.

An employer is paying the price for dismissing an employee who was recruited with an attractive job offer.

Bruce Rodgers had been the president of a transportation company for 11 years when CEVA Freight Canada Corporation approached him with a job opportunity. After being flown twice to Houston, attending 7 interviews, and meeting the CEO of the global parent company, Rodgers was offered a position as CEVA’s Country Manager. He turned it down, and was given a second offer with a higher salary and a signing bonus, which he accepted. Rodgers was also told that he was required to invest in the company to demonstrate his commitment, so he borrowed $102,000 to purchase CEVA’s shares.

A little less than 3 years later, Rodgers was dismissed by CEVA without cause. He was paid 2 weeks’ salary, along with severance of just under one additional week and outstanding vacation pay. His employment agreement had a termination provision that stated: “[y]our employment may also be terminated by our providing you notice, pay in lieu of notice, or a combination of both, at our option, based on your length of service and applicable legal requirements.” CEVA argued that while Rodgers was entitled to some damages, they should be limited by the fact that this provision highlighted length of service and Rodgers was there for less than 3 years.

The Court disagreed, finding that a reasonable notice period for Rodgers would have been 14 months. In the end, CEVA was ordered to pay Rodgers $345,985.

While the Court acknowledged that Rodgers’ short length of service was a relevant factor, it found that it did not deserve any particular weight because the employment agreement was not clear that his length of service would outweigh all other considerations. Instead, the Court turned its focus to the way Rodgers was recruited to the position.

The case serves as an important reminder that even where job security is not explicitly promised, or even discussed, the method of recruitment can be viewed by the Court as an implicit promise of job security. Here, the Court noted the “attractive” financial package Rodgers was offered, and that this was an improvement over the original offer that he declined. The Court was also persuaded by the fact that Rodgers was forced to make an investment in the company, giving him the impression that he could expect above average job security. As such, Rodgers was “induced” to join CEVA, and deserved a longer notice period.

Since inducement tends to be considered alongside other factors, it is difficult to gauge how it will affect the Court’s assessment of the notice period. In this case, there were other issues at play, including the employee’s age, his high level of responsibility, and the difficulty in finding a replacement position. However, the Court was clear that CEVA’s recruitment of Rodgers from a secure position of employment contributed to the long notice period awarded.

Employers should be aware of the unspoken commitments they make when recruiting employees who are already employed in secure positions. An employer’s efforts to convince someone to leave employment to join its organization may commit that employer to more than it had ever intended on termination. In these cases, it is particularly important to consider termination at the point of hiring, and to give serious thought to whether an appropriately drafted termination provision should be included as part of the employment contract, to avoid disputes as to entitlements on termination of employment.

Ms. Fair was employed by the Hamilton-Wentworth District School Board (the “Board”) from 1988 to 2004, when her employment was terminated. During her employment, Ms. Fair had developed a psychiatric disorder, namely, generalized anxiety disorder. She took a disability leave on October 2, 2001, as a result of depression and post-traumatic stress disorder related to the stress of her job. When the Board determined it could not accommodate her, the Board terminated her employment in July 2004. At that point, she filed a human rights complaint, alleging discrimination based on disability.

Due to amendments to the Human Rights Code in July 2008, Ms. Fair was given the opportunity to, and did, refile her complaint as a “transitional application” under the transitional rules that were put in place at that time. The result of this refiling was that for the first time, Ms. Fair formally identified the remedies she was seeking, including the remedy of reinstatement. The result: years after dismissing her, the Board learned that she was seeking reinstatement as a remedy.

In February 2012 the Tribunal finally issued its decision on liability, and concluded that there were in fact positions into which Ms. Fair could have been placed without causing undue hardship, but the Board had failed to make the attempts to do so. As such, the Board had failed in its duty to accommodate.

In 2013, the Tribunal issued its decision in respect of remedies. The Tribunal rejected the Board’s argument that the length of time between the termination and the decision made it unfair to order reinstatement. The Tribunal ordered the Board to reinstate Ms. Fair to a suitable position, being a position at or equivalent to the position she was in before the termination of her employment in 2004. The Tribunal also ordered the Board to compensate Ms. Fair for her loss of earnings for the entire period between her dismissal and the reinstatement, less any mitigation earnings, as well as $30,000 for compensation for the injury to her dignity, feelings and self-respect. Since Ms. Fair had earned minimal amounts since her dismissal, the amount owing was in excess of $400,000, plus pension and CPP adjustments and compensation for lost medical benefits, and a gross-up for tax (given the lump sum payment).Not surprisingly, the Board filed for review of the decision with the Divisional Court. The Board made a number of what might be called “technical” arguments about the decision, including that the Tribunal breached its duty of fairness in the way the hearing was conducted, that there was a “reasonable apprehension of bias” because of certain comments made by the Vice-Chair during the hearing, that the Tribunal failed to properly follow its own Rules, and that it had not provided sufficiently detailed reasons for its decision. The Divisional Court rejected all of these arguments, holding that there was no reasonable apprehension of bias on the part of the Tribunal, and that there were no procedural defects in the conduct of the hearing or in the decisions that had been issued.

The Board also argued that the Tribunal’s decision was unreasonable. The Board tried to attack the portion of the decision in which the Tribunal found that there was no appropriate accommodation made by the Board. The Board argued that it had made a number of accommodations for Ms. Fair, and that the Tribunal’s conclusion that the Board had not met the standard of undue hardship was unreasonable based on the evidence.

The Divisional Court rejected the Board’s arguments, and found that the Tribunal’s conclusion was supported by the evidence. The Court held that the Tribunal’s decision was reasonable, considering that the Board had taken a number of steps to avoid finding alternate employment for Ms. Fair, including a refusal to consider alternate roles and failing to seek out further medical evidence it needed to accommodate her.

In terms of the remedy, although the Court agreed with the Board that reinstatement was an “uncommon” remedy before the Tribunal, the Court held there was nothing unreasonable about such a remedy. The Court justified its conclusion by referring to the broad remedial authority of the Tribunal, and as well the Court referenced the unionized workplace setting, where reinstatement is not unusual where there has been a breach of a collective agreement.

With respect to the fact that so much time had passed between the dismissal and the order of reinstatement, the Court held that the goal of the remedial provisions of the Code ought not to be “thwarted” because of the passage of time, particularly since the delay was largely beyond the control of Ms. Fair.

There is a significant body of case law on the duty to accommodate disabilities in the workplace, and the high threshold needed to meet “undue hardship”. Were it not for the remedy (reinstatement with 10 years of back pay), this decision would not likely have raised eyebrows. There are relatively few cases in which the Tribunal has awarded reinstatement as a remedy, but certainly the award of reinstatement in this case, and the significant monetary damage award that followed, serves as a warning to employers about the risks inherent in the human rights process.

Ultimately, this decision underscores the importance of lining up any defence – and assessing the relative strengths and weaknesses – early on. It also demonstrates that the Courts will in general defer to specialized tribunals when it comes to fact-finding and remedial issues, so employers should not expect that Courts will readily relieve them from onerous decisions at the Tribunal. One thing is clear: if reinstatement is sought as a remedy, care should be taken on the employer side to ensure that the case is strong, and that it proceeds expeditiously through the system. In that sense, delay can certainly work against the employer where reinstatement is on the table, so employers should make every effort to ensure the case moves forward as quickly as possible. In that sense, if there is a real risk of reinstatement, delay could be said to work against the employer.

Of course, given the nature of the decision and the “costs” of the remedies (both financial and logistical), it can be expected that the Board will carefully consider seeking further review from a higher level Court. We will continue to watch the evolution of this case if/when it works its way to a higher level of authority.

Way back in 2008, the Ontario Human Rights Code was amended to permit human rights claims to be piggybacked onto wrongful dismissal actions in the Ontario courts. Prior to that time, the only recourse for an employee with a discrimination claim was to make a complaint to the [then] Human Rights Commission. Some 5 years later, the Ontario Superior Court of Justice has recently released its very first decision in a joint wrongful dismissal/discrimination action.

The case in question was the September decision of Justice Grace in Wilson v. Solis Mexican Foods Inc. Patricia Wilson was a 16 month employee at the time of her termination, and off work due to back problems. The reason given for Ms. Wilson’s termination was a corporate reorganization, but the court found that reasoning “[defied] common sense” as Ms. Wilson was never told about the impending reorganization while it was taking place. The court looked closely at the communications between Ms. Wilson’s doctor and employer, and found that the only conclusion that could be drawn was that the employer was not happy with Ms. Wilson’s ongoing back problems and absences from work, or her requests for accomodation. Justice Grace reiterated that as long as an employee’s disability is a factor in the decision to terminate, there will be a finding of discrimination. That is the case whether the disability is the sole factor or simply one small factor in the decision-making process. In this case it was clear to the judge that Ms. Wilson’s back problems were a significant factor in the decision to terminate, but the result would have been the same even if her back problems were but one factor along with the reorganization.

Having determined that Ms. Wilson had been discriminated against, the court awarded her $20,000 due to the fact that she “lost the right to be free from discrimination” and experienced “victimization”, and due to the fact that the employer orchestrated her dismissal and was disingenuous both before and during the termination. That amount was in addition to the damages received in lieu of notice of termination.

Interestingly, the court did not comment on whether or not reinstatement of employment was an option, thereby leaving that issue to another court on another day. While employees pursuing complaints at the Human Rights Tribunal can seek reinstatement, and while the Human Rights Code appears to permit courts to make similar orders, we still have no guidance as to whether reinstatement will become a tool used by our courts.

In the 2001 case of McKinley v. B.C. Tel, the Supreme Court of Canada ruled that a contextual approach is required in order to determine whether there is just cause for termination of employment. A recent wrongful dismissal case involving receipt of pornographic material illustrates how the contextual approach will be applied by courts.

In February 2013, the Court of Appeal of New Brunswick upheld a lower court finding in the case of Asurion Canada v. Brown and Cormier, to the effect that dismissal without notice was a disproportionately severe penalty for receiving pornographic emails at work. At the time of termination, Cormier had been with Asurion for 8 years and was a call centre supervisor. Brown was employed by Asurion for 9 years and was vendor payables specialist. Both men had a good employment history with the company. Both men, unfortunately, also had a mutual friend who liked to send them pornographic emails.

During the period from mid May to mid July 2010, Cormier and Brown were sent over a dozen unsolicited emails from their friend. The emails were promptly sent to home email accounts and deleted. They were not shared with anyone at work. When Asurion became aware of the emails in July as a result of its network monitoring system, both men were dismissed immediately due to breach of the company’s policies and breach of trust.

While the company did have a policy which prohibited “accessing, transmitting, receiving or storing discriminatory, profane, harassing or defamatory information”, the court found that the policy was not reasonable given that: (i) “receiving” information does not involve a positive act; and (ii) the emails in question were unsolicited. More importantly, the court confirmed that the response of the company was not proportionate to the actions of the employees. In particular, these longstanding employees had unblemished records, none of the emails were shared with fellow employees, and the images attached to the emails fell within the category of “perfectly legal adult pornography” and were not in violation of the Criminal Code of Canada.

Asurion had an employee handbook with a comprehensive Computer Use and Harassment policy. The company’s employees were required to read the company’s policies and there was some suggestion that they were reminded of the Computer Use policy each time that they logged onto their work computers. The company went even further, and used a network monitoring system in order to ensure that the policies were being complied with. Ultimately it was all for naught, as the policy was found to be unreasonable and the application of it was disproportionately severe when viewed through the lens of the employees’ years of service and specific actions or inactions in the case at hand.

This recent decision serves as a good reminder that any time a termination for cause is being considered, the employer should consider not just the offending actions of the employee, but the other relevant circumstances of the employee’s employment.

Although human resources professionals are not always recognized for their efforts during a corporate acquisition, the work which they do behind the scenes can often make the difference between an acquisition succeeding or failing. The following is a brief summary of key issues for HR professionals to stay on top of, long before an acquisition is ever contemplated, during the due diligence phase and right through to closing.

There are two types of transactions which can result in the purchase and sale of a business – a share purchase and an asset purchase. In a share purchase, the corporate identity of the target company does not change and as a result, the employees remain employed by the same purchaser after closing. Unless new employment agreements are negotiated with the purchaser, the employment terms and conditions of those employees will not change on closing. In an asset purchase however, only certain assets of the target company are purchased and the employees are therefore generally terminated by the target company unless they agree to accept new employment with the purchaser.

Keeping Your House in Order:

All too often, proposed acquisitions fall through after the purchaser becomes aware of potential employee liabilities which it will have to assume in the event of an acquisition. As an HR professional, you can assist with minimizing those liabilities long before an acquisition is being contemplated, by ensuring that: (i) well-drafted employment agreements are properly entered into; (ii) the company is protected with any necessary confidentiality, intellectual property and restrictive covenant agreements; (iii) there are no significant wages, vacation pay and overtime pay accruals; (iv) employee claims and complaints are kept to a minimum; and (v) mandatory statutory obligations are complied with (eg. WSIB registration; compliance with the Occupational Health and Safety Act; compliance with the Pay Equity Act). When potential employment liabilities are kept to a minimum, it greatly reduces the risk of a purchaser walking away from a deal due to the added costs of correcting the liabilities.

Due Diligence:

HR professionals should be aware of the fact that even in an asset purchase, the Employment Standards Act, 2000 contains successor employer provisions. In particular, section 9 of the ESA states that if a purchaser hires an employee of a vendor within 13 weeks of closing, the purchaser will be deemed to have taken on the employee with all of his or her prior years of service with the vendor. Therefore, although the inclination may be to think that the purchaser in an asset deal can “fix” employment problems hand-in-hand with the hiring of employees on closing, sometimes employees will balk at going to a new employer if they are not being hired on similar or better terms to those which governed their employment with the vendor. In this regard, it is often helpful for the vendor to work with the purchaser during the due diligence phase in order to determine who will be provided with offers of new employment and what the new and continuing terms of employment should be.

HR professionals in Ontario should also be aware of the fact that the Personal Information Protection and Electronic Documents Act (PIPEDA) does not yet have a business transaction exemption. Although employee personal information is not generally caught under PIPEDA, it can be subject to PIPEDA when employee personal information is being collected, used or disclosed for commercial purposes such as an acquisition. In order to ensure that there are no personal information breaches in connection with the acquisition of a company, if you work for the vendor it is wise to get the employees to sign a consent to the disclosure of their personal information at the time that they are first hired, as to do so in the midst of a transaction can tip employees off before the transaction becomes publicly known. Whether or not the employees have signed consents at the time of hire, it is also wise for the vendor and the purchaser to enter into confidentiality agreements with respect to employee personal information which may be disclosed in relation to the transaction.

Closing:

As the closing of the transaction approaches, it is particularly important for HR professionals for both the vendor and the purchaser to try to work together to determine such issues as who will take responsibility for accrued vacation, whether releases will be sought from employees who are part of an asset purchase, whether and what type of new employment agreements will be offered to those employees who are remaining on, and ensuring that employees who are not remaining on are properly terminated at or prior to closing. As well, there is often a need for certain key employees to remain on for a limited period to assist with transition work, and thought often needs to be given to whether those employees should be provided with a special retention bonus agreement or whether the expectation is that they will simply work out their notice of termination period doing transition work.

As always, it is important for HR professionals to obtain legal advice from an employment law specialist in conjunction with the above steps. Together, they can make the difference between a difficult acquisition and a successful one.

In a cautionary tale for employers, a jury in Windsor, Ontario awarded $1.4 million in damages to a former Wal-Mart employee who alleged that she had been constructively dismissed after being subjected to intentional infliction of mental suffering by her former manager.

The jury award included $1.2 million in punitive damages and damages for mental distress against the employer, and an additional $250,000.00 in punitive damages and damages for mental distress against the manager. The former employee established that the manager had punched her on the arm on two occasions, and had subjected her to profane and insulting mental abuse. Those allegations were that the manager had called the employee “a [expletive] idiot” in front of her co-workers, and that the manager had made the former employee count skids in front of co-workers in order to prove to him that she could accurately count.

The employer has already appealed the jury’s verdict to the Ontario Court of Appeal, calling the award “…wholly disproportionate and/or shockingly unreasonable.” This is not surprising, given that this award would set a new high-water mark for punitive damages in a wrongful dismissal case. (It appears that the jury may have based its award roughly on the amount that the former employee, who is currently 42 years of age, would have earned had she remained employed in her position until age 65. This figure had been raised by the former employee’s counsel in his closing submissions, although the trial judge had specifically instructed the jury not to consider that figure.)

Although, in our view, it is likely that the jury award will be set aside or reduced on appeal, this decision does underscore how important it is for employers to have a clear policy against incidents of workplace violence and harassment and to take prompt action to address such incidents when potential allegations of this nature come to light.

Employers are often concerned about whether terminated employees can claim entitlement to accumulated sick leave credits. This case shows how important it is to scrutinize every word in termination agreements; unclear language can come back to haunt the employer.

The employee had been employed for 29 years with the County of Haldimand and its predecessor municipalities. He was presented with and accepted a severance package. He signed a Release and in essence retired.

The severance agreement was incorporated into the Release and allowed for a claim for “usual retiree benefits.” The employee relied on that language to claim payment of accumulated sick leave pursuant to a section of the employer’s Policy Manual which stated:

“An employee hired prior March 12, 1981 and who has a minimum of five (5) years of continuous service will be entitled to a payment equal to the value of one-half (.5) of the balance of the employee’s accumulated sick leave credits to a maximum of one hundred thirty (130) days pay at current salary, upon termination of employment for any reason.”

At trial, judgment was awarded to the plaintiff for payment of accumulated sick leave credits. The employer appealed and argued that the severance agreement did not specifically give entitlement to sick leave credits, and the Release barred the employee’s lawsuit.

The court decided that the only “retiree benefit” that the employee had was the payment of accumulated sick leave pursuant to the Policy Manual. As such, the severance agreement’s reference to “retiree benefits” must mean the accumulated sick leave credits.

The court also held that the Release did not bar the claim because the severance agreement was incorporated into the Release.

Lastly, the court rejected the employer’s argument that the two-year limitation period started when the employee signed the severance agreement. Instead, because sick leave credits are part of retiree benefits, the court decided that the limitation period should begin May 31, 2008, the day when he “retired”.

Are large punitive damages awards in wrongful dismissal coming back? Looking at the trial court’s decision in the case of Pate v. Galway-Cavendish and Harvey (Townships), which is currently under appeal, one wonders.

Mr. Pate was a 9+ year employee at the Townships, who was terminated for cause due to his alleged non-remittance of building permit fees. When he refused to resign (after being given no details of the allegations against him), he was dismissed and the matter was reported to the police. In part due to the allegations against him and the ensuing criminal trial, Mr. Pate’s marriage and his side business with his wife both failed. In addition, he was unable to re-establish a career as a municipal official.

Mr. Pate was subsequently acquitted, and it was determined by the trial judge that the employer had failed to disclose key information to the Crown which would have resulted in no charges having been laid in the first place. The trial judge felt that the employer’s conduct merited relief in the form of a punitive damages award, due to the fact that damages for wrongful dismissal could not adequately address the fact that Mr. Pate’s career was effectively destroyed due to the allegations. However due to the principle of proportionality, the trial judge awarded Mr. Pate only $25,000 in punitive damages. The Ontario Court of Appeal subsequently overturned that decision and ordered that a new trial be conducted with respect to the quantum of punitive damages and another issue.

With reference to the damage caused to Mr. Pate as well as the fact that both the criminal proceedings and the wrongful dismissal trial took years to be dealt with, on the second time around the trial judge took full advantage of the Court of Appeal’s open invitation to punish the employer for its conduct, and increased the punitive damages award from $25,000 to $550,000.

While the matter is under appeal once again and it may be that the $550,000 was excessive, the Court of Appeal’s unusual invitation to the trial judge to reassess punitive damages at a higher amount makes it clear that our province’s highest court is not averse to punishing employers whose conduct is deserving of signficant punishment.

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